(GIN) – The steady nation of Ghana could be heading for a painful train wreck as government borrowing raises the foreign debt to sky-high levels.
Last month, President John Mahama signed on to a nearly $1 billion loan from the International Monetary Fund. To service the loan, the government will be forced to impose austerity measures that are very likely to hurt Ghanaian citizens. These measures include increases in fuel prices, a freeze on hiring public-sector workers and an end to energy subsidies.
The plan will be presented to the IMF’s board for approval in April, with the first pay out of approximately $100 million to be made shortly after.
According to Akwasi Sarpong, an analyst for BBC Africa, the bailout was considered necessary for the restoration of investor confidence in a struggling economy beset by crippling electricity blackouts.
Then, on the heels of the IMF bailout, more borrowing was announced. State-owned Ghana National Petroleum Corporation is close to signing a $700 million loan agreement with a group of private commercial lenders led by commodity trader Trafigura as part of plans to recapitalize for expansion, the GNPC chief executive said.
It’s the largest loan taken out by the GNPC since the start of oil production in 2010, which many had cheered as a harbinger of prosperity for all.
Unfortunately for Ghana, the world is awash with oil, at some of the lowest prices per barrel in years. In fact, the world is running out of storage for the oil that has already been pumped.
The mountainous borrowing was defended by Vice President Kwesi Amissah-Arthur, who dismissed the figure of $1 billion as insignificant. “Nine hundred and forty million dollars over a three-year period is not a lot of money, it is just about $300 million a year,” he told regional ministers at a conference in Cape Coast. “Now our infrastructure requirements are in the region of about $5 billion a year, so infrastructure alone is overwhelmingly bigger than the resources we are receiving from the IMF.”
But critics of the mounting loans are worried. At a press conference in early January, Minority Leader Osei Kyei Mensah-Bonsu attacked the ballooning of the public debt from $2.6 billion in 2008 to $19.7 billion today.
“Last year at this time, the burden for every Ghanaian was $582. One year on, the debt per capita has increased by 40 percent. No thanks to ‘yentie obi ara’ (‘we are not listening to anyone’) government.”
“What is the most important issue in Ghana today?” asked Stephen Nyarko in Ghanaweb. “It is four letters long. Yes, it is DEBT, and it is the unsustainable type.”
Nyarko continued, “Not long ago, Ghana had a positive economic future, according to the World Bank and IMF. The narrative of ‘Ghana Rising’ was all over the international financial press. Ghana’s once mighty Ghana new cedi has now achieved infamy as the worse performing currency in the world. The slumping currency is fueling inflation. The impact on citizens economic well-being has become so that well-meaning citizens who invested in the Ghana new cedi in 2007, have seen their wealth and savings totally wiped out.
“If we are to get over our current unsustainable debt burden, we need to restart the debate about the breakneck speed at which Ghana has been borrowing money and using its natural resources—oil, gold, cocoa—as collateral. The old models of just borrowing yourself out of poverty and inefficiencies do not fit.”